Key Legal Requirements for Company Setup in Nepal: A Detailed Overview

Choosing the right company structure is one of the most critical decisions when entering Nepal. The debate around private vs public company in Nepal goes far beyond ownership size. It affects compliance, capital flexibility, fundraising, timelines, and long-term exit options.

For foreign companies, this choice determines how smoothly you navigate Nepal’s regulatory system. It also influences your cost base and operational risk. This guide breaks down the legal, commercial, and strategic differences in a clear and practical way.

Understanding Company Structures in Nepal

Nepal’s corporate framework is governed primarily by the Companies Act, 2006. Two mainstream structures are available for commercial operations.

What Is a Private Limited Company in Nepal?

A private limited company is the most common entry vehicle for foreign businesses. It is privately held and designed for controlled ownership.

Key characteristics:

• Limited to a small group of shareholders

• Shares are not publicly tradable

• Lower compliance burden

• Faster incorporation timeline

What Is a Public Limited Company in Nepal?

A public limited company is structured for capital raising from the public. It is suitable for large-scale projects, banks, hydropower, and infrastructure ventures.

Key characteristics:

• Can issue shares to the public

• Subject to higher disclosure standards

• Heavily regulated by multiple authorities

• Higher capital requirements

Private vs Public Company in Nepal: Legal Comparison

This section directly addresses the core keyword and highlights legal distinctions that matter most to foreign investors.

1. Shareholders and Ownership Rules

Private company

• Minimum: 1 shareholder

• Maximum: 50 shareholders

• Foreign shareholders allowed under FITTA 2019

Public company

• Minimum: 7 shareholders

• No maximum limit

• Foreign ownership permitted but sector-specific caps apply

2. Minimum Capital Requirements

Capital thresholds vary by sector. However, general legal expectations differ.

Insight:
Foreign companies testing the market prefer private entities due to capital flexibility.

3. Governance and Management Structure

Private company

• Minimum 1 director

• No mandatory independent directors

• Simple board governance

Public company

• Minimum 3 directors

• Mandatory independent directors

• Audit and risk committees required

Compliance Burden: What Foreign Companies Must Know

Compliance is where many foreign investors underestimate complexity.

Private Company Compliance Snapshot

• Annual general meeting optional

• Simplified annual filings

• No mandatory public disclosures

• Lower audit thresholds

Public Company Compliance Snapshot

• Mandatory AGM

• Quarterly and annual reporting

• Statutory audits

• Regulatory oversight from multiple bodies

Practical takeaway:
Unless public fundraising is essential, private companies reduce compliance friction significantly.

Fundraising and Capital Market Access

Private Companies

Private companies cannot issue shares to the public. Funding options include:

• Shareholder equity

• Foreign direct investment

• Intercompany loans

• Convertible instruments

Public Companies

Public companies can:

• Issue IPOs

• Raise capital via rights shares

• List on Nepal Stock Exchange

• Attract institutional investors

This makes public companies suitable for capital-intensive sectors.

Taxation Differences: Private vs Public Company in Nepal

Tax rates are broadly similar, but compliance costs differ.

• Corporate tax rate generally ranges from 20–30 percent

• Dividend distribution tax applies in both structures

• Public companies face stricter tax scrutiny

Foreign investors often prefer predictable tax administration, favoring private companies.

Sector-Specific Restrictions for Foreign Investors

Nepal restricts foreign investment in certain sectors.

Commonly restricted areas include:

• Small retail trading

• Certain media activities

• Local courier services

Public companies in regulated sectors face additional approvals.

Timeline to Incorporate: Speed Matters

Private company

1. Name reservation

2. Document submission

3. Registration certificate

4. PAN and local registrations

Typical timeline: 2–4 weeks

Public company

1. Regulatory approvals

2. Capital verification

3. Prospectus preparation

4. Registration and compliance

Typical timeline: 2–3 months or longer

Strategic Use Cases: Which Structure Fits Your Business?

Choose a Private Company If You:

• Are entering Nepal for the first time

• Want operational control

• Plan to hire local teams

• Need flexibility

Choose a Public Company If You:

• Require large capital injection

• Plan public fundraising

• Operate in infrastructure or finance

• Have long-term institutional goals

Common Mistakes Foreign Companies Make

1. Overestimating capital needs

2. Choosing public structure prematurely

3. Ignoring sector-specific FDI caps

4. Underestimating compliance costs

Avoiding these mistakes saves time and capital.

Risk Matrix: Private vs Public Company in Nepal

Frequently Asked Questions (People Also Ask)

Is a private company better than a public company in Nepal?

For most foreign businesses, yes. Private companies offer lower compliance, faster setup, and more flexibility. Public companies suit large capital-intensive projects only.

Can a foreigner fully own a private company in Nepal?

Yes, 100 percent foreign ownership is allowed in most sectors under FITTA 2019, subject to approval.

What is the minimum investment for a private company in Nepal?

For foreign investors, the practical minimum is NPR 20 million, depending on sector guidelines.

Can a private company convert into a public company later?

Yes. Conversion is permitted but requires regulatory approvals and compliance upgrades.

Is a public company mandatory for listing in Nepal?

Yes. Only public companies can list on the Nepal Stock Exchange.

Conclusion: Making the Right Choice

The private vs public company in Nepal decision should align with your market entry strategy, capital plan, and risk appetite. For most foreign companies, a private limited company provides the best balance of control, compliance ease, and scalability.

Choosing correctly at the start avoids costly restructuring later.